Mitigating Servicing Fraud in a Structured Finance Transaction

Abstract

Although they are few in number, recent instances where a perpetrator has harmed a structured finance transaction through fraudulent or abusive actions should serve as a warning sign. From the perspective of a structured finance servicer, this article provides examples of potential servicing fraud in a structured transaction, warning signs of servicing fraud, and practices that industry participants should follow to help reduce fraud. The majority of fraudulent or abusive servicing practices can be categorized in three areas: cash, collateral, and reporting. The responsibility to mitigate servicing fraud lies not just with the servicer, but also with the issuer, underwriter, legal counsel, trustee, back-up servicer, and investor.